Small Company Accounting

The required format for statutory accounts for small companies has changed. We consider the reporting requirements and their impact. At McGregors, we can provide guidance on the new reporting standards in the Mansfield area.

The required format of statutory accounts that small companies have to prepare and send to Companies House has changed. This factsheet sets out the choices that small companies now have. The nature of the company’s activities, the types of assets which it has and whether external scrutiny is required/desired will need to be considered.

We would be happy to assist you in providing specific advice for your company.

New UK GAAP for small companies

Small companies, depending on size, have the following options:

to use the same accounting standard as non-small UK companies - FRS 102

to use the FRS 102 reduced disclosure regime (section 1A), or

where relevant, to apply an alternative standard - The Financial Reporting Standard applicable to the Micro-entities - FRS 105.

Increased size limits for small companies

Many more companies now qualify as small as a result of the substantially increased company size limits:

Previous

Current

Turnover

£6.5m

£10.2m

Total assets

£3.26m

£5.1m

Employees

50

50

The size limits to qualify as a micro-entity are set out below:

Current

Turnover

£632,000

Total assets

£316,000

Employees

10

A company needs to meet two out of three of the above criteria for two consecutive years to qualify as a small or micro company, unless it is the first year of the company's existence, in which case only that year has to be considered. The turnover limit is adjusted if the financial year is longer or shorter than twelve months.

There are certain exclusions from the above small and micro-entity size limits which are set out in the Companies Act 2006. Certain types of entity are prohibited from preparing micro-entity accounts for example charities.

The previous option of filing abbreviated accounts has been withdrawn, however, small companies continue to have the option of not filing their profit and loss account and/or directors' report at Companies House.

Small companies have the option of preparing less detailed accounts (abridged accounts) for members, providing every member agrees annually, and will be able to choose to abridge the balance sheet, the profit and loss account or both. Charities are also prohibited from preparing abridged accounts.

Contents of micro-entity accounts

The accounts of a micro-entity are considerably shorter and simpler than those otherwise required for a small company. Micro-companies are no longer required to prepare a Directors' report.

The profit and loss account and balance sheet include less detail. For example current assets are shown in aggregated total on the balance sheet rather than being analysed into stocks, debtors and cash.

Notes of the following should be disclosed at the foot of the balance sheet:

off balance sheet arrangements

average monthly employees

directors' advances, credits and guarantees, and

guarantees, contingencies and other financial commitments.

Only the balance sheet and the footnotes need to be filed at Companies House. The profit and loss account does not need to be filed.

The company does not need to produce (nor file) typical small company notes such as:

accounting policies

post balance sheet events, and

related party transactions.

Fair value accounting and alternative accounting rules cannot be applied in micro-entity accounts, meaning no revaluations or measurement at fair value is permitted.

Contents of FRS 102 1A accounts

The financial statements of a small entity must give a true and fair view of the assets, liabilities, financial position and profit or loss of the small entity for the reporting period.

A complete set of financial statements of a small entity must include all of the following:

a statement of financial position as at the reporting date

an income statement for the reporting period, and

notes to the accounts.

A statement of cashflows is not required.

The following may however be required in order to show a true and fair view:

when a small entity recognises gains or losses in other comprehensive income it is encouraged to present a statement of total comprehensive income, and

when a small entity has transactions with equity holders it is encouraged to present a statement of changes in equity or a statement of income and retained earnings.

In relation to the notes of the accounts one significant exemption is available in relation to related party transactions. Only material related party transactions which are not concluded under normal market conditions will need to be considered for disclosure.

Comparison of FRS 102 1A accounts and FRS 105

The table below sets out the requirements including those encouraged for FRS 102 Section 1A and FRS 105:

FRS 102 (Section 1A)

FRS 105

Directors' report

Yes

No

Profit and loss account

Yes

Yes

Statement of comprehensive income / Statement of total recognised gains/losses

Loans payable or receivable (for example to or from a director) falling due more than one year, with a nil or below market rate of interest, must be measured at the present value of future cash flows, however there is an optional relaxation of this requirement permitted within FRS 102 for small entities, in certain circumstances.

Deferred tax

FRS 105 does not allow companies to recognise deferred tax. By contrast, FRS 102 Section 1A requires deferred tax to be provided on fair value adjustments, and therefore likely to occur more frequently than before.

How we can help

If you are in the Mansfield area please do contact us at McGregors for guidance on the required format for small company accounts.